[India Premium] Midcap Stock Update

Let's first start off with the Nifty Free Float Midcap 100 Index itself. Prices are at 10-month lows and below our risk management level of 19,020 on the long side. There have been several bullish momentum divergences over the last few months, however, they've failed to materialize. As long as prices are below 19,020, they remain vulnerable to test 16,030. 

Click on chart to enlarge view.

Below we see an expansion of 52-week lows among its components, confirming the downside price action we've seen in the index. While previous spikes above 20% in this breadth measure have marked extremely short-term lows, prices went on to make new lows as fewer of its components made 52-week lows. We've not seen this divergence yet, but we're watching for it to help anticipate a reversal in the index.

With that said, there currently is a bullish divergence in the number of stocks hitting oversold conditions. Fewer stocks are getting oversold as the index makes new lows, which is what we like to see ahead of a reversal.

On a relative basis, mid-caps continue to struggle relative to large-caps. The ratio of Nifty 100 vs the Nifty Free Float Midcap 100 is however approaching potential resistance.

Mid-caps, however, have been out-performing their small-cap counterparts. Based on the ratio of Nifty Free Float Midcap 100 vs Nifty Free Flat Smallcap 100, it looks like this out-performance has room to continue.

Before we get into individual stocks, I just want to reiterate some points from the conference call regarding sector performance.

Financial Services stocks continue to be an area of strength, with the cap-weighted and equal-weighted versions of the index hitting new highs.

Similarly, the Fast Moving Consumer Goods Index is also hitting new all-time highs on both a cap-weighted and equal-weighted basis.

The same can be said for the Nifty IT Index.

Not all sectors look great though, as indicated by the 10-month + lows in the equal-weighted and cap-weighted Nifty Infrastructure Index.

We're seeing a similar topping pattern in both the equal-weighted and cap-weighted versions of the Nifty Metals Index.

Despite the strength in the several sectors discussed above, we're also seeing a number of failed breakouts due to the weakness in mid-caps. As long as mid-cap under-performance continues, it will be a headwind for all potential long positions within this market-cap segment.

Longs

The first long idea on our list is Bajaj Holdings & Investment Ltd. if prices are above 3,050, with a price target of 3,845.

Cholamandalam Investment & Finance Company Ltd. is another FS stock being held back by the index's weakness, however, if we get a breakout above 1,600 we want to be buying the stock and taking profits near 1,940.

Indiabulls Venture is flagging tightly after hitting our price target near 524.50. If prices can close above that level we want to be buying the breakout and taking profits near 845.

RBL Bank is back near the top of its 15-month range. We want to be buying a breakout above 599 and taking profits near 689.

Bata India Ltd. is a name that's been working for us on the long side. We want to be buying weakness in the stock as long as prices are above 706 and taking profits near 896, at which point we'll reevaluate our position as our secondary price target is near 1,200.

Berger Paints continues to work on the long side. We want to be buying weakness as long as prices are above 275 and taking profits near 338.50.

GlaxoSmithKline Consumer Healthcare Ltd. continues to consolidate near the top of its 3.5-year range. We want to be watching for a breakout above 6,790 as it would trigger a long position with a price target at 8,075.

Pfizer Ltd. is a name we've been mentioning for several months now. We want to be buying a breakout above 2,640 and taking profits near 3,260.

Sanofi India Ltd. broke out a few weeks ago, so we want to be long if prices are above 5,190 and taking profits near 6,010.

AIA Engineering continues to consolidate just under all-time highs. We want to be buying a breakout above 1,665 and taking profits up near 2,235.

Apollo Tyres failed to break out earlier this year, but is now back toward the top of its one-year range. As long as prices are above 246 we want to be long and taking profits near 324.50.

Hexaware Tech continues to trend higher. We want to be buying weakness in the stock as long as it's above 433.50 and taking profits near 592.

Mindtree Ltd.'s 2 failed breakout attempts this year prove that this needs more time to consolidate before heading higher. With that said, we want to be buying the next breakout above 1,100 and taking profits near 1,475.

Mphasis Ltd. continues to trend higher. We want to be buyers as long as prices are above 1,095 and taking profits near 1,640.

3M India Ltd. is breaking out to new all-time highs after consolidating below our previous price target. We want to be buying these new all-time highs as long as prices are above 21,430 and taking profits near 34,185.

Thomas Cook India is a stock we've wanted to be long above 255 and want to take profits near 311.

Page Industries Ltd. failed to hold its breakout earlier this month, suggesting it needs some time to consolidate before making new highs. With that said, we want to be buying a breakout above 28,610 and taking profits near 40,260.

Solar Industries India is a stock we want to be watching for a breakout above 1,190 with an upside price target of 1,540.

Sterlite Tech Ltd. broke below our previous price target of 297 and quickly reversed. This is very bullish behavior that we want to be buying. As long as the stock is above 297 we want to be long and taking profits near 470.

We want to be long Exide Industries Ltd. if prices are above 245.50 and taking profits near 285.25.

SHORTS

Bharat Forge is a short candidate after its failed breakout above the 2015 highs. As long as prices are below 675 we want to be sellers of strength and taking profits down near 516.50.

Housing & Urban Development Corp. Ltd. is a name that we want to be selling weakness in if it's below 54.75 & covering down near 43.60.

Union Bank is a name we want to be fading strength in as long as it's below the 2008 and 2013 lows of 98.50 and taking profits down near 42.50.

We want to be selling strength in Reliance Power as long as prices are below 35.35 and taking profits down near 19.50.

Tata Power Company Ltd. is a short that's been working well since our post last month. If prices are below 76.75 we want to be selling strength and taking profits near 55, with a secondary price target of 49.

Engineers India Ltd. is another weak stock we want to be selling strength in as long as prices are below 140.50. Our price target is down near 100.

Tata Communications is a name we want to be short after its bullish consolidation pattern resolved the the downside. We want to be fading strength as long as it's below 609 and taking profits near 500.50.

The Bottom Line: Albeit a long post, that is a summary of what's happening in the mid-cap space as we see it. As you can tell, this past month or two have pretty much been a continuation of what we've seen all year. The sectors that were leading then are leading now, the sectors that were lagging then are lagging now. We continue to watch for divergences in breadth and momentum to suggest that the Nifty Midcap Index may be nearing a turning point, however, as of now the weight of the evidence suggests it remains at risk of further downside on an absolute basis.

As for long and short opportunities among its components, the names discussed above are those with the best reward/risk scenarios and well-defined risk. In the event that what's been working stops, we know where we're wrong and can exit with minimal loss.

Thanks for reading and let us know if you have any questions.

Allstarcharts Team